Athearn's history began in 1938, when its founder-to-be, Irvin Athearn, started an elaborate O scale layout in his mother's house. After placing an ad selling the layout, and receiving much response to it, Irv decided that selling model railroads would be a good living. He sold train products out of his mother's house through most of the 1940s. After becoming a full-time retailer in 1946, Irv opened a separate facility in Hawthorne, California in 1948, and that same year he branched into HO scale models for the first time.

Athearn acquired the Globe Models product line and improved upon it, introducing a comprehensive array of locomotive, passenger and freight car models. Improvements included all-wheel drive and electrical contact. One innovation was the "Hi-Fi" drive mechanism, employing small rubber bands to transfer motion from the motor spindle to the axles. Another was the double-ended ring magnet motor, which permitted easy connection to all-wheel-drive assemblies. Athearn was also able to incorporate flywheels into double-ended drives.

The company produced a model of the Boston & Maine P4 class Pacific steam locomotive which incorporated a cast zinc alloy base and thermoplastic resin superstructure. It had a worm drive and all power pickup was through the bipolar trucks that carried the tender. This item was discontinued after the Wilson motor was no longer available, and was not redesigned for a more technologically advanced motor.

Athearn's car fleet included shorter-than-scale interpretations of passenger cars of Southern Pacific and Atchison, Topeka & Santa Fe Railroad prototypes. The company also offered a variety of scale-length freight cars with sprung and equalized trucks. The cars could be obtained in simple kit form, or ready-to-run in windowed display boxes. The comprehensive scope of the product line contributed to the popularity of HO as a model railroad scale, due to the ready availability of items and their low cost.

Irv Athearn died in 1991. New owners took control in 1994, but continued to follow Athearn's commitment to high-quality products at reasonable prices. Athearn was bought in 2004 by Horizon Hobby. Athearn was then moved from its facility in Compton to a new facility in Carson, California. In mid-2009, all remaining US production was moved to China and warehousing moved to parent Horizon Hobby. Sales and product development was relocated to a smaller facility in Long Beach, California.